Credit Crunch Right Around The Corner: US Senators Introduce Bill To Break Up Megabanks, Bring Back Glass-Steagall, FRB To Implement Basel III Capital Reforms And To End QE This Year (Not Slow End)

Regulators maintain differing opinions on how to craft a safety net for systemically risky financial institutions, but most of them agree a stronger capital system for the financial market must be in place.

As a result, the majority of policymakers approved the final regulatory capital rules for the Basel Committee on Banking Supervision Tuesday, laying the foundation for future banking institution reform. The approvals occurred at an open meeting held by the Federal Deposit Insurance Corp. to finalize Basel III rules already approved by the Federal Reserve.

While there have been bumps along the way — specifically inner agencies failing to agree upon a common consensus of the regulations — finalizing the elements of Basel III will help ensure banks can safely wind down and deal with unexpected losses during a severe economic crisis.

Basel III: How The Bank For International Settlements Is Going To Help Bring Down The Global Economy

A new set of regulations that most people have never even heard of that was developed by an immensely powerful central banking organization that most people do not even know exists is going to have a dramatic effect on the global financial system over the next several years. The new set of regulations is known as “Basel III”, and it was developed by the Bank for International Settlements. The Bank for International Settlements has been called “the central bank for central banks”, and it is headquartered in Basel, Switzerland. 58 major central banks (including the Federal Reserve) belong to the Bank for International Settlements, and the decisions made in Basel often have more of an impact on the direction of the global economy than anything the president of the United States or the U.S. Congress are doing. All you have to do is to look back at the last financial crisis to see an example of this. Basel II and Basel 2.5 played a major role in precipitating the subprime mortgage meltdown. Now a new set of regulations known as “Basel III” are being rolled out. The implementation of these new regulations is beginning this year, and they will be completely phased in by 2019. These new regulations dramatically increase capital requirements and significantly restrict the use of leverage. Those certainly sound like good goals, the problem is that the entire global financial system is based on credit at this point, and these new regulations are going to substantially reduce the flow of credit. The only way that the giant debt bubble that we are all living in can continue to persist is if it continues to expand. By restricting the flow of credit, these new regulations threaten to burst the debt bubble and bring down the entire global economy.

Not that the current global financial system is sustainable by any means. Anyone with half a brain can see that the global financial system is a pyramid scheme that is destined to collapse. But Basel III may cause it to collapse faster than it might otherwise have.

A small bipartisan group of U.S. senators on Thursday introduced legislation that would break up Wall Street’s megabanks by separating traditional banking activity from riskier financial services.

The bill, called the 21st Century Glass-Steagall Act, has an uncertain future, but it shows some lawmakers’ frustration that banks have only continued to grow since the 2007-2009 financial crisis.

“The four biggest banks are now 30 percent larger than they were just five years ago, and they have continued to engage in dangerous, high-risk practices that could once again put our economy at risk,” said Democratic Senator Elizabeth Warren from Massachusetts, one of the sponsors of the bill.

The other sponsors are Republican Senator John McCain from Arizona, Democratic Senator Maria Cantwell from Washington, and Senator Angus King, an independent from Maine who caucuses with the Senate’s Democrats.

The bipartisan group of legislators say they want to bring back the core of the 1933 law that was repealed in 1999, which would separate commercial banking activities insured by the Federal Deposit Insurance Corp. from institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private-equity activities. (McCain was the only of the four legislators who was in the Senate in 1999; he voted to repeal Glass-Steagall.)

“Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits,” said McCain, the Arizona Republican and former presidential candidate, in a statement.

“Despite the progress we’ve made since 2008, the biggest banks continue to threaten the economy,” added Warren, the Massachusetts Democrat who was the brainchild of the agency now called the Consumer Financial Protection Bureau.